After the COVID-19 pandemic shook up the rankings of performance winners and losers, Detroit – typically an underdog for rent and occupancy metrics – now ranks among the strongest performing apartment markets in the nation.
The Midwest market has been quietly working its way up the apartment rent growth leaderboard in recent months and claimed the #15 spot among the nation’s 50 largest markets for rent growth in April. Effective asking rents in Detroit grew 5.7% in the year-ending April 2021, marking the highest rate in the Midwest.
Such star status is a far cry from Detroit’s performance over the last five years when the market often ranked in the bottom 10 markets nationwide for rent change. Helping Detroit outperform, the market managed to avoid the rent cuts seen across many markets across the U.S. during the pandemic. In fact, the market has not recorded year-over-year rent cuts in more than a decade.
Meanwhile, the national norm for rent change returned to positive territory in April for the first time in several months. Rents grew 1.7% across the U.S. in the year-ending April 2021.
Even with strong rent growth, prices in Detroit remain below the national norm. Average effective rents registered at $1,078 per month in April. That rate is below other larger Midwest rents, such as Chicago and Minneapolis, but still pricier than smaller Midwest markets like Indianapolis, Cleveland, St. Louis and Kansas City.
Allowing for rent flexibility, occupancy in Detroit has remained tight over the past five years and generally runs above the national norm. Such is still the case. In April, Detroit occupancy registered at 97.3%, fifth best among the nation’s 50 largest apartment markets and the strongest showing in the Midwest. Occupancy has climbed 130 basis points (bps) in Detroit over the past year. Meanwhile, the national norm for occupancy registered at 95.8%, up 40 bps year-over-year.
Much of Detroit’s strength comes from limited supply over the past decade. Detroit’s existing unit base expanded just 2.4% in the last 10 years. Among the nation’s 50 largest apartment markets, this was one of the lowest rates of supply expansion, outpacing only the growth seen in Providence.
However, construction activity in Detroit has picked up recently. More than 4,700 units are under construction in Detroit and about 3,700 of those units are expected to complete in the next year, growing the market’s total inventory by about 1.3%. That represents a 325% increase from the 10-year norm of just 850 units delivering annually.
As of 1st quarter 2021, Detroit was well positioned to absorb that new supply. After only one quarter of negative absorption in 2nd quarter 2020 when the impacts of the pandemic were most severe, Detroit demand rebounded robustly in 4th quarter 2020 and 1st quarter 2021.
In the year-ending 1st quarter 2021, Detroit absorbed 3,683 units, far outpacing concurrent new supply of just 1,217 new units. Likely contributing to rebounding absorption has been Detroit’s recovering employment base. This market has recovered all but 7.1% of the jobs lost during the economic downturn, well ahead of the national average of 6%.